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Introduction
The infamous Enron corporate debacle revealed the dark underbelly of corporate culture in the United States. After years of admirable economic performance, Enron boasted a stellar record of corporate responsibility, right up until the moment that it collapsed under the weight of its senior management’s hubris. Seemingly overnight, Enron becomes synonymous with “corporate misbehaviour”: rampant corruption, a near-pathological thirst for money, and a feeling of invincibility amongst its C-suite employees, even when committing brazenly criminal acts and manipulating the truth to serve the goal of profit by any and all means (Mullins, 2007; Crowther and Green, 2004: p. 88).
Organizational culture, in the case of Enron, became a secret society; the consistent feeling shared by the senior management toward profit is best characterized as “win or else” (Bloisi, W. et al., 2006; Kakabadse, Ludlow and Vinnicombe, 1988: p. 4; Maanen and Barley, 1985).
Main body
Numerous theorists have studied the erosion of ethical perspective displayed by Enron’s corporate culture. Sims and Brinkmann (2003) understood that the fate of Enron revealed an important tenet of organizational culture, namely that “business ethics is a question of organizational “deep” culture rather than of cultural artifacts like ethics codes, ethics officers and the like” (p. 243). The deep tissue of Enron’s corporate culture was composed of wholly self-serving material. It reflected an utter contempt for ethics and placed value solely on financial return. As Sims and Brinkmann (2003) understand, “Enron’s top executives set the tone for this culture.
Personal ambition and greed seemed to overshadow much of their corporate and individual lives. They strove to maximize their individual wealth by initiating and participating in scandalous behaviours. Enron’s culture created an atmosphere ripe for the unethical and illegal behaviour that occurred” (p. 253). In the end, Enron’s corporate culture became its own undoing. Its catastrophic collapse was Greek in scale, and rife with irony. As Sims and Brinkmann reflect:
The partnerships that once boosted earnings and allowed Enron to prosper became the misplaced card that caused the Enron house to collapse. The stability of Enron’s house of cards had been eroded by the very culture that had allowed it to be built. Enron was forced to renounce over $390 million in earnings from dealings with Chewco Investments and JEDI, another partnership. The company was also forced to restate earnings back to 1997, and the restated earnings totaled only $586 million, a mere 20% of the initially reported figures. The very results Enron had sought to prevent – falling stock prices, lack of consumer and financial market confidence – came about as a direct result of decisions that had been driven by Enron’s culture (p. 246)
Harrison (1992) explained the distinguishing characteristics of a power culture as “strong leadership from a central power source, culture characterized by competition and challenge, [and decision making] as a result of political struggles rather than logical deduction” (p. 11). Enron exhibited two key elements of a power culture: firm leadership from a centralized power source in the hands of CEO Jeffry Skilling, combined with a culture that prized a ruthlessly competitive attitude.
For Skilling and his upper echelon, rules and ethics remained irrelevant so long as the personal need for profit could be continuously sated (Hellriegel and Slocum, 1974: p. 22). With these two aspects in mind, this paper critically analyses the deep structure of Enron’s corporate culture and highlights how Enron’s leaders, particularly CEO Jeffry Skilling, created an environment wherein senior management believed they were above the law. The paper employs the functionalist theories of Taylor, as well as the radical theories of Marx, Weber, and Braverman to shape and inform this analysis.
As Reimann and Wiener (1988) state, “while the corporate strategy may control a firm’s successes or failure, corporate culture can make or break that strategy;” thus any discussion of Enron must originate with its leader, Jeffry Skilling (p. 5). As CEO, Skilling “actively cultivated a culture that would push limits” (Sims and Brinkmann, 2003: p. 244). Skilling’s mindset – avaricious at best, criminal at worst – effectively created a fiefdom in his own image from Enron, and developed an internal culture that “rewarded cleverness” (Sims and Brinkmann, 2003: p. 244; Josephson, 1999: p. 13-14). Skilling employed the organizational culture at Enron as a powerful means of crafting and controlling the “shared meaning” demonstrated by his upper management’s value system (Morgan, 1996; Robbins, 1991; Ray, 1986).
A CEO in the classical sense, Skilling’s close control mode of leadership held on to power jealously, and concentrated power in a tight circle of confidantes who were intellectually and ethically on board with his slippery values. Skilling engaged in control tactics including the public shaming of employees that did not perform up to standard (Sims and Brinkmann, 2003: p. 244). When it came time for performance reviews, according to Sims and Brinkmann (2003), Enron “associates graded their peers, which caused a great amount of distrust and paranoia among employees (p. 251) Under Skilling’s leadership, Enron’s corporate culture began almost immediately to devolve into a culture of fear, an environment wherein those employees of lax ethical character could realize enormous financial gains through nefarious practices, while those who did not share the Enron cutthroat mentality were threatened, demoted, or jettisoned.
As Sims and Brinkmann (2003) astutely observed, “at some point in the bending of ethical guidelines for the good of the company, Enron’s executives also began to bend the rules for personal gain. Once a culture’s ethical boundaries are breached thresholds of more extreme ethical compromises become lower” (p. 246). Skilling openly supported ethical breaches through his focus on bottom-line results to the exclusion of all other factors (Sims and Brinkmann, 2003).
In the words of Sims and Brinkmann (2003), Skilling embodied the “self-serving attitude of Enron leadership,” and as the leader, his questionable moral character colored the Enron corporate culture heavily (p. 249). Employees understood that Skilling’s “attention was clearly focused on profits, power, greed, and influence. [He] wanted the…employees to focus on today’s bottom line. Skilling communicated his priorities to his employees overtly, both in word and deed (p. 247).
Essentially, Skilling treated Enron as his own personal cash cow which he milked dry and then unceremoniously abandoned once the jig was up. Before the stirrings of Enron’s eventual implosion even began, Skilling was “willing to abandon the company to save his own skin as evidenced by his mysterious resignation in August 2001” (p. 248). The reasons behind Skilling’s abrupt departure were given only as “personal,” and “still hold significant amounts of company stock at a premium” (p. 248).
Skilling’s lookout for number one attitude set the tone of the company; it also created a precedent for the future. Since Skilling openly indulged in the blame game as soon as Enron’s indiscretions could no longer be cached, other executives followed suit. Skilling told “an incredulous Congress that despite his Harvard Business School degree and business experience he neither knew of nor would understand the intricacies of the Enron accounting deals (p. 248).
As Sims and Brinkmann (2003) state, Enron “executives not only condoned…unethical behavior, they initiated it and were rewarded for it. The partnerships were used to deceive investors about the enormous debt Enron was incurring. It also sent a message to employees that full and complete disclosure is not a requirement, or even recommended. If the company achieved short-term benefits by hiding information, it was acceptable” (p. 249).
Both Marx and Weber have highlighted the alienating effect of capitalism on employees (Crowther and Green, 2004: p. 102). In a capitalist enterprise such as Enron, the deregulation of the electrical power markets that took place in the late 1980s – as understood by Skilling – opened a carte blanche mindset in him, which he, in turn, imparted to the Enron corporate culture. Skilling’s leadership style echoed the classical, domineering, utterly competitive leadership style that Marx and Weber’s theories describe. In the constant pursuit of profit, Skilling exploited the emotions of his employees, and used heavy control tactics such as force, intimidation, public shaming, threat, and derision to instill his values in his core management group, and also as a means to jettison those that did not adhere to his win at all costs philosophy.
Braverman (1998) has demonstrated that the system of capitalism itself places enormous pressure on employees to compete, outperform rivals, and maintain growth, all in the desperate attempt to hold on to their livelihoods and sources of income (Crowther and Green, 2004: p. 102). The unholy combination of praise and adulation heaped upon Enron by the business community, the press, and financial analysts, “only added fuel to the company’s competitive culture” (Sims and Brinkmann, 2003: p. 244). Skilling’s executives internalized this hero-worship, and “felt driven by this reputation to sustain the explosive growth of the late 1990s, even when they logically knew that it was not possible” (Sims and Brinkmann, 2003: p. 245).
Skilling and his core management team encountered first hand the inherent paradox of capitalism itself, namely, that unchecked growth cannot be sustained. Eventually, someone will realize that the Emperor has no clothes. In Skilling’s case, however, the Emperor fooled his audience for a very long time.
How did Skilling achieve this? One of the most simultaneously fascinating and terrifying elements of the Enron corporate debacle remains the effect that Skilling’s leadership and concomitant corporate culture had on the decision making of its employees once they were under its thrall. After Enron imploded, numerous observers wondered how things had ever become so outrageously criminal. To answer this, one need only look at Taylor’s seminal work Scientific Management: Early Sociology of Management and Organizations. One thing Skilling understood was the powerful incentive of a fast reward (French and Raven, 1959: p. 8).
As Sims and Brinkmann (2003) note, “the behaviour of people rewarded with pay increases or promotions signals to others what is necessary to succeed in an organization…[and] the reward system created by a leader indicates what is prized and expected in the organization” (p. 250). The system of rewards and incentives shapes a corporate culture; Enron’s reward system remunerated deviousness and unscrupulousness.
As Taylor (1947) describes, for a reward to “be effective in stimulating men to so their best work, [it] must come soon after the work has been done….few men are able to look forward for more than a week or perhaps at most a month, and work hard for a reward which they are to receive at this time” (p. 94). Taylor’s theory helps to explain what drove Enron executives to “sell assets and “create” earnings that artificially enhanced its bottom line” through “pseudo partnerships” that never actually realized a profit (Sims and Brinkmann, 2003: p. 245). This behavior, though criminal and ethically odious, did generate the kind of immediate financial gratification that Taylor understood keeps employees on board, regardless of the consequences, especially in a culture like Enron’s that valued employee “ingenuity” (Taylor, 1947: p. 128).
In Enron’s case, there was money coming in, and that’s all that mattered to Skilling and the senior management. Enron’s practice of rewarding deceit and punishing honesty also “contributed to an unethical work culture…by promoting self-interest above any other interest. As a consequence, the team approach once used by Enron associates deteriorated. Performance reviews were public events and poor performance was ridiculed…or employees were fired through a “rank and yank” process” (p. 250).
Another important answer to the question of “how” refers to the deep stratum of Enron’s corporate power culture, namely, the mindset of superiority and superhuman giftedness that it instilled in its employees. Skilling produced the classic model of a power culture in that Enron executives did not employ “logical deduction” to make decisions rationally, according to verifiable external financial realities (Harrison, 1992: p. 11). Rather, Enron executives made decisions irrationally, based on internal concepts and criteria of self-worth that only required verification from Skilling (Buchanan and Badham, 1999; Johnson and Scholes, 1992). Sims and Brinkmann (2003) allude to this phenomenon here:
Enron employees with a self-image of being the best and the brightest and being extremely clever do not make business deals that fail. Therefore booking earnings before they are realized were rather “early” than wrong…Enron’s decision-makers saw the shuffling of debt rather as a timing issue and not as an ethical one. Clever people would eventually make everything right because the deals would all be successful in the long run (p. 245).
Enron’s hiring practices were another method the company used to perpetuate the power culture shaped by ideals of the win at all costs. Skilling looked for a similar attitude in new recruits, and actively sought out those who could and would flout the rules as long as sustained financial growth was the result. As Sims and Brinkmann (2003) outline, new employees represent “a powerful way of how a leader reinforces culture.
Leaders often unconsciously look for individuals who are similar to current organizational members in terms of values and assumptions. Some companies hire individuals on the recommendation of a current employee. This tends to perpetuate the culture because the new employees typically hold similar values. Promotion-from-within policies also serve to reinforce organizational culture (p. 251). To this end, Skilling consciously continued to feed the unethical character of Enron’s corporate culture through his hiring practices.
As Sims and Brinkmann (2003) note, Skilling’s new recruits were always on board with the unspoken criminal agenda, as “Skilling hired only Ivy League graduates with a hunger for money that matched his…employees that embodied the beliefs that he was trying to instill: aggressiveness, greed, a will to win at all costs, and an appreciation for circumventing the rules” (p. 251).
Essentially, senior Enron employees began to believe Skilling’s hype; they bent the rules and indulged in magical thinking en masse, believing that all would work out in their favor in the end, simply because they were the chosen few (Huczynski and Buchanan, 2007; Thompson and McHugh, 2002). From the outside looking in, many critics asked why there weren’t more whistleblowers, and why employees stayed mum for so long.
One explanation is that the success culture of Enron led these employees to lose touch with reality because employees “wanted to be seen as part of the star team and to partake in the benefits that that honor entailed” (Sims and Brinkmann, 2003: p. 252) It is important to remember, above all, as Sims and Brinkmann aptly observe, that Enron executives “probably felt that they were doing the right thing for their organization” (p. 245). Sims and Brinkmann (2003) explain that amongst the Enron elite, “the culture of cleverness at Enron started as a pursuit of excellence that devolved into the appearance of excellence as executives worked to develop clever ways of preserving Enron’s infallible facade of success” (p. 246).
The element that “existed in Enron’s culture that kept individual employees from exposing the executive wrongdoers” was the desire to be part of the inner sanctum, to partake in the wealth and social power that the upper echelon of Enron management epitomized, and reap the benefits of inclusion (Sims and Brinkmann, 2003: p. 252). Enron employees “who had been encouraged to invest heavily in the company” naturally stayed on board with the culture in the hopes that their investments would show some returns in exchange for their hard work and silence (Sims and Brinkmann, 2003: p. 246).
Similarly, like some cults, the corporate culture of Enron offered a clear example of “groupthink…where individuals feel extreme pressure not to express any real strong arguments against any co-workers’ actions. Although very individualistic, the culture at Enron was at the same time conformist” (p. 252). It was an insulated and secretive culture that kept its inner working hidden from the outside world for many years.
The corporate culture of Enron essentially reflected a bunker mentality: for those employees who bought into the corporate culture, ethical lines eventually blurred, especially when financial rewards came fast and plenty. Ethics eventually grew to represent impediments to success, and employees circumvented them willingly and frequently in an effort to further their ascension through the corporate ranks.
Conclusion
While the Enron corporate debacle remains one of corporate America’s darkest and most disturbing ethical dramas, it does have enormous value as a teaching tool for legislators and corporate governance professionals. Also, Enron stands as a cautionary tale for leaders. As Sims and Brinkmann (2003) shrewdly observed, “the destiny of an organization is determined by the character of its leadership” (p. 250). A power culture, though financially exciting and inspiring, must always keep one eye on reality, and maintain a sense of modesty, lest it is subsumed by delusions of invulnerability.
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